Small Business Restructuring
Good news! The Government has introduced changes to Insolvency Laws to help small businesses.
On 1 January 2021 a Simplified Restructuring process (cheaper & maintains director control, details below) and a Simplified Liquidation process (cheaper & simpler) were created by new legislation.
You can register on the right and we will keep you updated on the details.
What is Small Business Restructuring?
The legislation to enable Small Business Restructuring became active on 1 January 2021, but the infrastructure is not ready yet. We expect to be able to offer the new process in the second half of February 2021.
A Simplified Restructuring is a streamlined version of the more comprehensive Voluntary Administration (VA) process. It is the process whereby a business with less than $1 million of creditors enters a binding deal with its creditors, usually to legally reduce the debt owed.
We think this is a fantastic development for Australian Small Business. At Insolvency Solutions Group, we have worked for over 10 years to develop streamlined processes to bring the costs down for Small Business. We welcome the introduction of new legislation allowing us to take this even further.
Insolvency Solutions Group currently assists hundreds of Small Businesses to restructure every year. Our highly systematised approach allows us to complete the process for small to medium businesses quickly and efficiently, and therefore at the lowest possible cost, making us the prefect choice for a Small Business Restructuring.
How does Small Business Restructuring Work?
Debtor in Possession
The key to a Simplified Restructuring is that the company’s directors remain in control of trading a business whilst they develop a restructuring plan which is then put to creditors for a approval.
Simplified Restructuring can be contrasted with a Voluntary Administration where the reigns are handed to a Registered Liquidator who oversees all aspects of the running of the company for the length of the process. Because a Simplified Restructuring leaves the directors in control, the red tape and costs are dramatically lower.
Length of Process
A Simplified Restructuring gives the company 20 days to work with a Small Business Restructuring Practitioner (that’s us) to formulate a deal and the up to 15 days for the creditors to vote on that deal.
A Voluntary Administration is a similar length at 30 days, but it is often extended.
Small Business Restructuring Practitioner
A Small Business Restructuring is run by a Small Business Restructuring Practitioner (SBRP). The company appoints an SBRP who provides advice and opinions but is not in charge of trading. The SBRP must be a registered liquidator.
Employee Entitlements Must Be Brought Up To Date
To be able to propose a deal to creditors in a Simplified Restructuring, all employee entitlements must be brought up to date.
This may be a significant stumbling block for many small businesses interested in using this process. Note that it will require all superannuation to be brought up to date.
Ending the Process
The aim of a Simplified Restructuring is for the company to propose a deal and for the creditors to accept that deal by way of a simple majority in value of creditors. Often that deal will involve the payment of money to the creditors over a period of time and that process will be run by the SBRP. The directors have their choice of options if their deal does not get approved by creditors. They can look at Simplified Liquidation, Voluntary Administration or do nothing. A company is not forced into Liquidation upon the failure of the proposed deal as is the case in Voluntary Administration.
It will depend on the circumstances but we expect practitioner fees will come in under $50,000. Bear in mind the actual cost will be higher because the deal to creditors must be funded on top of practitioner fees. Our recommendation is a deal to creditors should be no less than 5% of total debt.
The Government have now passed the Law, but the infrastructure is still being put in place. If you are interested in Simplified Restructuring, you may wish to have Register Your Interest in the box at the top of this page. We will keep you informed of the specifics as they unfold. We expect to start offering Small Business Restructurings in the second half of February 2021.